Few corners of the insurance industry illustrate the consequences of actuarial mispricing as starkly as long-term care. What began in the 1980s as a promising product line - designed to protect aging Americans from the catastrophic costs of nursing home and home health care - has deteriorated into an industry-wide crisis. In 2026, the long-term care insurance (LTCI) market stands at a crossroads: legacy blocks hemorrhaging capital, carriers fleeing the market, policyholders absorbing staggering premium hikes, and a handful of state governments attempting to build public alternatives from scratch.

From tracking LTC market developments over the past several years, a pattern has become clear: the traditional standalone LTCI model is functionally broken, and the industry’s path forward runs through hybrid products, public-private partnerships, and a fundamental rethinking of how long-term care risk gets financed. This article examines where the crisis stands today, what it means for actuaries, and where the market is headed.

The Scale of the Problem: Why Long-Term Care Costs Keep Rising

The Genworth/CareScout 2024 Cost of Care Survey - one of the most comprehensive studies of its kind, drawing on responses from over 15,000 long-term care providers nationwide - confirmed that costs continued to outpace general inflation across every care category.

The headline numbers are striking. The national annual median cost of a semi-private room in a nursing home rose to $111,325, an increase of 7% year-over-year. Private nursing home rooms climbed 9% to $127,750 annually, or roughly $10,646 per month. Assisted living community costs jumped 10% to an annual median of $70,800, or approximately $5,900 per month. Homemaker services - hands-off help with cleaning and cooking - also surged 10%, while home health aide costs rose 3% to a national median of about $77,792 per year.

The drivers behind these increases are both structural and cyclical. Inflation was identified as the top factor pushing up costs for assisted living communities, nursing homes, and adult day care centers. For home care services, labor costs were the primary contributor. The staffing shortages documented by the Agency for Healthcare Administration - which found that 60% of nursing homes reported worsening staffing problems since 2022 - continue to put upward pressure on wages and, by extension, on care costs.

Meanwhile, assisted living occupancy rates rose from 77% to 84% year-over-year, suggesting that growing demand may be further pressuring supply and driving higher rates. For a retiree needing three years of nursing home care in a private room, the total cost now approaches $383,000 - a figure that would exhaust the savings of most American households.

How Actuarial Mispricing Created a Market Collapse

The LTCI crisis is, at its core, a story of actuarial assumptions that proved disastrously wrong. When carriers first priced standalone LTC policies in the 1980s and 1990s, the actuarial profession lacked the experience data needed to project key variables accurately. Three critical assumptions failed:

Lapse rates were overestimated. Early pricing models assumed that a meaningful percentage of policyholders would let their policies lapse before ever filing a claim - similar to patterns observed in other insurance lines. In practice, LTC policyholders proved far more persistent than expected, continuing to pay premiums and maintaining coverage at rates that dramatically exceeded projections.

Morbidity was underestimated. The number of policyholders who eventually qualified for benefits - and the duration and intensity of their claims - exceeded initial assumptions. As the Society of Actuaries noted, LTC experience proved more closely related to annuitant mortality than life insurance mortality, reflecting significant anti-selection among those who purchased and maintained coverage.

Interest rate assumptions proved optimistic. Many policies were priced during an era of higher interest rates, with investment income expected to subsidize premiums. The prolonged low-rate environment of the 2010s and early 2020s eroded those assumptions further.

The result has been catastrophic for the industry. As the NAIC has documented, the misestimation of initial pricing assumptions made it necessary for insurers to increase LTCI rates repeatedly to ensure their future solvency. Some policyholders have experienced cumulative rate increases exceeding 500%, according to analysis published in the SOA’s Long-Term Care News. A single rate increase of 200–400% is no longer uncommon for older-vintage blocks.

The Carrier Exodus: From 100+ to Fewer Than 15

The financial consequences of these mispriced blocks have driven a mass exodus from the market. In the 1990s, more than 100 companies were actively selling individual LTC policies. By 2020, that number had fallen to fewer than a dozen, and sales of traditional standalone policies had dropped to roughly 49,000 per year. As of 2025, perhaps 10 companies remain in the market, and most of those are mutual companies owned by their policyholders. Only about six insurers currently sell standard standalone long-term care insurance policies.

Genworth - still the largest LTCI carrier by in-force policies with over 1.1 million policyholders - suspended selling plans through brokers in 2019 and has continued to need annual rate increases to approach economic break-even, according to AM Best.

The Federal Long Term Care Insurance Program (FLTCIP), which serves federal employees, retirees, and military members, has been frozen to new enrollments since December 2022. The Office of Personnel Management extended that suspension through at least December 2026, citing “ongoing volatility in long-term care costs and a diminished insurance market.” Roughly 267,000 FLTCIP participants saw premiums increase by as much as 86% in 2024 alone.

Legacy Block Management: Reinsurance and the Race to Reduce Exposure

Carriers holding legacy LTC blocks are increasingly turning to reinsurance transactions to reduce their exposure. The most notable recent deal: in February 2025, Unum Group announced a $3.4 billion LTC reinsurance agreement with Fortitude Reinsurance Company, ceding 19% of Unum’s total LTC statutory reserves. The transaction closed in July 2025 and was expected to generate approximately $100 million in capital benefit for Unum. Fortitude Re subsequently retroceded 100% of the LTC insurance risks to a highly rated global reinsurer.

This was the third major LTC reinsurance transaction in recent years, following two earlier deals announced by Manulife in December 2023 and November 2024. The NAIC reported LTCI incurred claims of approximately $16 billion in 2023, and Milliman’s projections suggest that existing in-force policies will generate substantial claims over the coming decades as the policyholders who purchased coverage in the 1990s and 2000s enter their highest-need years.

For actuaries working in LTC reserving, these transactions represent both validation of reserve assumptions and a new set of modeling challenges. The Milliman 2024 LTC Rate Increase Survey - which covered 17 companies representing over 75% of LTC premium in the United States - found that the average time from rate filing submission to regulatory approval was six months, with California, Florida, New Jersey, New York, and Texas consistently requiring the most effort.

The Rate Increase Landscape: What the 2024 Milliman Survey Reveals

The regulatory environment for LTC rate increases varies enormously by state. Some jurisdictions approve increases relatively quickly; others have complex, multi-year processes that involve extensive actuarial and non-actuarial review.

Key findings from the 2024 Milliman survey and SOA analysis include:

New York, historically one of the most challenging states for LTC rate approvals, has shown willingness to approve large increases phased in over multiple years - a meaningful development for carriers seeking to address legacy block shortfalls.

The Coverage Gap: 70% Need It, 3% Have It

Perhaps the most sobering statistic in long-term care is the disconnect between need and coverage. According to the U.S. Department of Health and Human Services, approximately 70% of Americans aged 65 and older will require long-term care services at some point during their remaining lives. Yet LIMRA estimates that only about 3% of Americans over age 50 have any form of LTC insurance protection - traditional or hybrid - including annuity-based LTC riders.

The average expected cost of long-term care now exceeds $120,000 in today’s dollars over a lifetime, according to HHS actuarial analysis. For those who need extended care, the costs are vastly higher. An 82-year-old with multiple chronic conditions requiring a shared nursing home room now faces annual costs exceeding $111,000. Without insurance, families are forced to either self-fund, rely on unpaid family caregivers, or spend down assets to qualify for Medicaid - which in most states requires depleting assets to $2,000 or less for individuals.

The workforce implications are significant. About 80% of long-term care received at home is provided by unpaid family caregivers, according to HHS. These caregivers frequently reduce hours or leave the workforce entirely, losing income along with health and retirement benefits.

The Hybrid Product Shift: Life Insurance Meets LTC

With standalone LTCI in structural decline, the market has pivoted toward hybrid or combination products that bundle LTC coverage with life insurance. These products address the primary consumer complaint about traditional LTC policies - the “use it or lose it” concern - by guaranteeing a death benefit if long-term care is never needed.

LIMRA’s Individual Retail Life Insurance Sales Survey found that hybrid life/LTC products generated $4.2 billion in new premiums and 450,000 new policies in 2024. Annuity/LTC combination products also reached record sales in 2024, up more than 50% year-over-year, though they still represent only about 0.2% of total annuity sales.

The industry trend is unmistakable. Eleven of the 40 largest insurance carriers now provide both LTC and chronic illness solutions, with four additional carriers set to enter the market soon. Products like Brighthouse SmartCare, Nationwide CareMatters, and offerings from MassMutual and Lincoln Financial are designed around the indexed universal life or fixed universal life chassis, with LTC acceleration, restoration, and extension of benefits riders.

For younger buyers, the appeal of hybrid products is notable: LIMRA’s 2024 Insurance Barometer Study found that nearly 40% of Millennials expressed strong interest in purchasing a life/LTC combination product, compared to 27% of Gen X and 17% of Baby Boomers.

However, hybrid products typically require substantially larger upfront premium commitments - often $100,000 to $150,000 per person - placing them out of reach for many middle-income Americans.

Washington’s WA Cares Fund: The Public Option Experiment

In the absence of a federal solution, Washington State has become the test case for publicly financed long-term care. The WA Cares Fund - the nation’s first mandatory, publicly funded LTC insurance program - began collecting payroll premiums of 0.58% of wages in July 2023 and will start paying benefits statewide in July 2026, following a pilot program in four counties that launched in January 2026.

The program provides eligible workers who have contributed for at least 10 years with a lifetime benefit of up to $36,500, adjusted annually for inflation using the Seattle-area CPI. While this amount falls far short of covering extended care - a shared nursing home room in Seattle alone costs approximately $14,331 per month - the program is designed as a first layer of coverage, not comprehensive protection.

Several 2025 legislative updates through Senate Bill 5291 significantly expanded the program. Workers who relocate out of Washington may now continue coverage if they have contributed for at least three years. Individuals who previously opted out with private insurance can rejoin before July 2028. The law also authorized private insurers to offer supplemental policies that layer on top of WA Cares - creating a new market opportunity that must provide at least 12 months of coverage after WA Cares benefits are exhausted.

Washington voters defeated Initiative 2124 - which would have allowed residents to opt out of WA Cares - by a comfortable 55% to 45% margin in November 2024, providing a mandate for the program’s continuation.

Other States Watching Closely

At least 12 other states have explored or are actively considering similar public LTC programs. Minnesota and New York are considered the most likely to advance legislation in 2025 or 2026. California’s Long-Term Care Insurance Task Force completed its final actuarial report in late 2023, though no legislation has yet been introduced. Massachusetts commissioned a Milliman feasibility study on a payroll-tax-funded program with a proposed $7,500 monthly benefit maximum and $75,000 lifetime benefit. Hawaii’s LTC Financing Commission is expected to deliver its report shortly after the 2026 legislative session begins.

At the federal level, the Well-Being Insurance for Seniors to be at Home (WISH) Act has been reintroduced, proposing a catastrophic LTC benefit with tiered waiting periods based on income. A Morningstar study published in August 2025 found that WISH benefits would significantly reduce retirement shortfall risk.

New Tax Incentives for 2026

Two notable tax developments affect LTC insurance in 2026. First, IRS-announced tax-deductible limits for qualified LTCI premiums have increased by approximately 3%. For individuals age 70 or older, the maximum deduction is now $6,200 per person (up from $6,020 in 2025). A couple both over 70 could deduct up to $12,400 combined.

Second, Section 334 of the SECURE 2.0 Act created a new category of “qualified long-term care distributions” effective for distributions made after December 29, 2025. Workers can now take up to $2,600 per year from certain employer retirement plans (401(k), IRA, 403(b)) to pay qualified LTCI premiums without the standard 10% early-withdrawal penalty for those under age 59½. The distribution remains taxable as ordinary income but removes one barrier to purchasing coverage earlier in life.

What This Means for Actuaries

The LTC crisis creates both challenges and opportunities for actuarial professionals:

Reserving and valuation specialists face ongoing complexity as Actuarial Guideline LI (AG 51) requirements continue to evolve. The NAIC’s Life Actuarial (A) Task Force is actively working on updates to actuarial guidelines, and the interplay between asset adequacy analysis and LTC-specific risks demands increasingly sophisticated modeling.

Pricing actuaries working on the new generation of hybrid products must navigate a fundamentally different risk profile than standalone LTC - integrating mortality, morbidity, lapse, and investment risks across multiple benefit triggers and product designs. The shift toward variable pricing, claims prevention strategies, care navigation, and wellness programs adds further modeling dimensions.

Public policy actuaries are in growing demand as states design and evaluate mandatory LTC programs. Washington’s experience will generate real-world utilization and claims data that will inform program design nationwide. The SOA’s LTC Population Research Model - developed to examine potential impacts of publicly financed LTC benefits at the federal level - provides a framework, but each state’s demographics, cost structure, and political context create unique actuarial challenges.

Consulting actuaries supporting rate increase filings face a complex and jurisdiction-specific regulatory environment. The Milliman LTC Guidelines - updated with predictive analytics incorporating data from 460,000 claims and 30 million life-years of exposure - provide the industry-standard baseline for developing morbidity assumptions, but translating those assumptions into approved rate filings remains an intensive process.

Looking Ahead

The long-term care financing challenge will only intensify as the Baby Boomer generation moves deeper into its highest-need years. U.S. Census Bureau projections estimate that the number of Americans aged 65 and older will grow from approximately 58 million in 2022 to 82 million by 2050. The existing LTC infrastructure - already strained by staffing shortages and rising costs - will face unprecedented demand.

The private LTCI market has demonstrated that voluntary, individually-underwritten coverage cannot close the gap on its own. Only 3% coverage among those over 50 - despite a 70% probability of needing care - represents a market failure of the first order. The industry’s path forward likely involves some combination of public baseline coverage, hybrid private products for supplemental protection, employer-sponsored group benefits, and technological innovation in care delivery.

For actuaries, this is among the most consequential long-term challenges the profession faces. The technical demands are substantial - spanning pricing, reserving, regulatory compliance, public policy modeling, and product innovation. The societal stakes are even higher.